What is antitrust? Antitrust is a set of laws that are supposed to promote fair competition and prevent monopolies.
You have probably heard the word “antitrust” a lot since the birth of the giant tech industries. It is always being used to refer to Microsoft, Google, and Facebook (sorry – Meta). But, what actually is it? Well, to work that out, we need to start by finding out what a trust is.
Companies have existed for as long as people have had money and wanted to make money. A company is simply a legal construction for people to engage in business. There are different types of companies, but they generally exist so that people can make money for doing something. The problem with a company is that there are usually regulations to stop them from becoming too big. It was difficult for companies to buy other companies if it would make them too large. In America, at least, it was also difficult to buy multiple companies in different states as well. To get around this, one system was to have trusted people, but the companies for you. These trusted people would sit on a board of trustees that would manage all of the companies in the portfolio. They would all have different owners on paper, but there would actually only be one real owner. In the 19th century, John D. Rockefeller began to heavily use this system.
Rockefeller was born in 1839 to a fairly poor family. He started out as a bookkeeper but moved into the newly emerging oil industry as the Civil War was winding to a close. There was a lot of money to be made in refining oil, although not as much as there would be when the gasoline engine was invented in about 20 years. Through various methods (some quite dubious), he got his hands on more and more small refineries. He reinvested his profits in the company, and it began to grow. He called his company Standard Oil of Ohio in 1870. He started to buy up oil refineries, oil companies, and any kind of company connected with the oil industry. It took him a long time, and he had to do some things that were quite underhanded, but by the early 1880s, Standard Oil controlled 90% of the United States’ oil market, and most of the world’s as well. Rockefeller played the market and bought out companies when times were hard. He also improved efficiency, and the price of kerosene fell by 80% during the life of Standard Oil. By using all of the hundreds of companies in the trust, Rockefeller was able to bring prices down.
Rockefeller might have seen manipulation of prices as helping the consumer, but it certainly helped him. He could use the vast array of companies at his disposal to push prices down and put companies out of business. This was not illegal, but the companies going out of business, and the press certainly did not like it. From the early 1880s, there was a strong movement to do something about Rockefeller’s trust. The government started to listen, and the antitrust laws were born. In 1890, a senator called John Sherman brought in the first antitrust law to prevent companies from forming monopolies.
Standard Oil was taken to court numerous times for breaking these laws, but it was only in 1911 that the US Supreme Court ruled that Standard Oil was a monopoly and needed to be broken up into 34 separate companies. Many of these oil companies still exist and have combined to become massive oil companies, such as ExxonMobil. The idea behind the antitrust law was sound, but it didn’t actually work in this case. The 34 companies might have become separate entities, but they were not going to compete against each other. Also, Rockefeller had owned most of the original company, and now he owned a large part of each of the new companies. His fortune skyrocketed.
Since then, antitrust laws have been used whenever it looks like a company is becoming a monopoly. The main problem with a monopoly is that there is no competition, and that makes things worse for the consumer. Monopolies are not subject to the laws of supply and demand because they can increase or decrease the supply at will and increase or decrease the price at will. If you don’t like their price, there is nowhere else to go. Most recently, antitrust laws have been used against Alphabet, Google’s parent company. Google has been accused of acquiring companies to close down the competition when it comes to their search and advertising business. They control pretty much the only search engine, and they also control pretty much the only advertising service, which means there is no competition. Not sure what will happen. And this is what I learned today.
Sources
https://www.ebsco.com/research-starters/history/standard-oil-trust-organized
https://en.wikipedia.org/wiki/Trust_(business)
https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/antitrust-laws
https://www.investopedia.com/terms/a/antitrust.asp
https://www.investopedia.com/terms/c/company.asp
https://en.wikipedia.org/wiki/John_D._Rockefeller
https://en.wikipedia.org/wiki/Sherman_Antitrust_Act
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